7 Moves You Haven’t Made in Your 401k
We’ve all heard about the basic retirement plan advice: get your employer match, pick the appropriate asset allocation, and check the expense ratios on the funds. There has to be more, right? Of course there is. Here are some tips for thoroughly evaluating your 401k and taking advantage of the less talked about options.
1. Uncover Hidden Administrative Fees. It’s becoming more common that employees are paying the administrative costs for 401k plans, but the fees are sometimes hard to find. Check your transaction history for removal of partial shares. If you didn’t sell anything, it’s probably an administrative fee. In addition, you can also check out the expenses of your plan in the annual Form 5500 filing, which is available to the public.
2. Look for In-Service Withdrawal Options. Check your summary plan document. If you are allowed to make in service withdrawals, you can roll your 401k money to an IRA while you are still working. I’ve done this in the past to contribute extra money to my Roth IRA. In addition, it’s great for anyone who is getting the shaft in their 401k.
3. Check for a Self-Directed Brokerage Account. If your 401k account options are terrible, look for the option to manage your own retirement account. In exchange for agreeing to indemnify and hold harmless your employer, you get access to invest in a huge set of choices. My husband has this option at the University and it opens up the plan to over 3,000 funds.
4. Sign up for Automatic Increases. This option is becoming more popular on plans of all sizes. If you can’t max out your plan now, but want to keep increasing your contribution, select this option and let your administrator automatically increase your deferrals on a scale that you choose. Coordinate it with your annual raises and you won’t even notice the difference.
5. Claim your Saver’s Credit for Retirement Savings Contributions. Tax credits up to $1,000 ($2,000 for married couples) are available for contributing to your retirement plan. Eligibility guidelines and income limitations are in IRA Publication 590. The credit is in addition to the ability to contribute pre-tax to a 401k or deduct your contribution to a traditional IRA. If you missed this credit in the past, you can amend your old tax returns to get your credit back.
6. Check Access to Institutional Funds. If you work for a large employer, chances are you might have access to some funds that you couldn’t use as an individual. For example, we have access to the Vanguard Institutional Index Fund with an expense ratio of 0.025%. However, the minimum investment is $200,000,000. With fees like that, it’s sometimes worth it to roll IRA money INTO your 401k.
7. Coordinate with Your Spouse. If you aren’t going to max out both your plans, contribute to the plan that gives you a better deal (after getting the match on both plans). Look at investment options, expense ratios and fees. My husband has access to a 457 plan; it’s a better plan than a 401k and 403b due to the liberal withdrawal guidelines, so we direct all our contributions there first. Some may not feel comfortable commingling your retirement planning with your spouse, but we share all our money. (In addition, we live in a community property state, so even if we don’t want to, we share our money.)
Do you have other tips and tricks for maximizing your retirement plan? Share your thoughts in the comments.
Good tips, but I always hate hearing about the “Saver’s Credit” because the rules don’t let me claim it. Even if I wasn’t married, we blow the limit out of the water, yet we struggle to be able to find the dollars to contribute.